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10 Cards in this Set

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  • Back
-the study of how we make decisions regarding the production, consuption, and distribution of scarce resources.
~scarce resources exsist when there is not enough of a resource that everyone can have as much as they want when ever they want.

**ALL of these Economic desisions are based on costs and benifits. we try to maximize the benifits and minimize the cost***
Economics refers to all decisions we make regarding scarce resources (like time); two types
microeconomics: The study of individual markets and behavior with in an economy

Macroeconomics: the study of the interrelationships among different sectors of an economy (producers, consumers, investors, banks, and financial institions, governemtn, trading powers)
National economies are generally combonations of the following types:
-Capitlism: (land, labor, machinery, factories, natural resources(is independantly owned):The mans of production are privatley owned governemtn regulation of the economy is limited. Markets are permitted to operate freely

-Socialism: Major and crucial industries are owned and operated by the government (economic decisons can be made by the government only or by democratic vote) Private ownership of minor industries is permitted

-communism: also known as a "command economy" all of the means of production are owned by the government. All economic decisions are made by the government. Private ownership of property is not allowed or severly limited

-mixed market: a combination of the above systems
-First systamatically described by adam smith.(wrote wealth of nations 1776). He reffered to the system as "laissez-faire" economics in which the market place is guided by the self -intrest of both buyers and sellers (the "invisible hand").

It has the following characteristics:
-Private ownership and control of all resources
- Free enterprise (little or no regulation of markets
-Competition (what keeps prices low)
-freedom of choice
The potential of profit
The united states has a mixed market
Since their is a free market capitialism with government playing a key role in several areas:

-preserving free enterprise and competition through anti-monopoly laws

-It influences the economy throught spending (it is the nations largest consumer)

-regulates in terms of public health and saftey of workers and citizins

-It plays a role in the regulation of forgien trade through duties and tariffs (which are types of taxes)

-it contorls some industries and services (like eduucation roads and post offices)

-It provides social security and welfare services (entitlement programs run throught trans for payments to eligible citizens
Demand and supply
-In a market with free interaction between producers and consumers and free from government interference, the laws of demand and supply regulate price and quantity of avalible goods.
The law of Demand
The law of Demand: All else being equal, as the price of a good or service increase, the quantity demanded of the good or service decreases (an inverse/ indirect relationship between price and quantity)

-There are many factors that affect demand besides price:

-tastes and prefernces

-price of related goods


-the number of consumers

-expectations about future
prices and income

-the precence of substitute goods (the increase in price of one good increases the demand for the other ex) coffee and tea, beef and chicken))

-The presence of complimantory goods (the increase of price of one good, decrases the demand for the other ex) peanut and jelly, cameras and film))
The law of Supply
The law of supply: all else being equal , as the price of a good or service increases, so does the quanity of the good that producers are willing to supply (a direct relationship)

-there are also many factors that affect the supply of a good or service in a free market:

-price of resources

-Technology and productivity

-expectations or producers

-Number of producers

-prices or related good and
Free market
-In a free markt consumers and producers interact. Eventually the market will reach a point of equillibrium the price at which the supply of goods equals the demand
-Self-intrest controls this
-a difference between the demand and supply creates a surplus or a need or shortage.
-Economists look at the big picture , how all of the various sectors of the economy interact-usally in teram of expenturea and income:

-Total expenditure (GDP):
C+I+G+EX-IM= consumer spending +investment +government+ Export- import

Total income:
W+TR-TAX= Total wages+ government transfer payments-taxes

~6 key interactive sectors (large parts) in the economy
-Government: both a consumer and a producer
-Consumers:anyone who purchases goods and services
-producers: Anyone who provides good and srvices
-Investors: Anyone who uses their wealth or capitial in order to create a busniess
-Banks and financial insitutions: regulate flow of cash throught system
-Trading Partners (forigen trade): involved in imports and exports